brown on green, A Regular column about finances

by David Brown

Don't Buy the Wrong End of the Car

Automobile manufacturers have made many advances over the last two decades. Twenty years ago, a car with 100,000 miles was considered to have had a good life and was ready to be junked. Today, most cars easily surpass 150,000 miles with regular maintenance. Many Americans, however, continue to buy new cars, drive them for five years and trade them for another when they reach 75,000 miles. This raises the question, “Are we buying the wrong end of the car?”

Purchasing a car with 75,000 miles and selling it when it reaches 150,000 miles is a better financial move. The potential savings is staggering. According to the Wall Street Journal, the average new car in 2011 costs $29,817. A five-year-old used model with average mileage can be purchased for 36% of the original price tag, resulting in savings of more than $19,000. While it is true a used car will require more repairs than a new car, if you allow $3,000 in repairs during the second half of the car’s lifespan, the initial savings remains over $16,000.

If you keep the vehicle for five years and sell it as a 10-year-old car with normal mileage, it will sell for 11% of its original value, or $3,300. That means the total cost of the car is only $10,500, even with repairs. Compared to more than $19,000 for a new car, you will save nearly $9,000.

For those saving for retirement, diverting the money you save by buying used vehicles will make a big difference. The savings are even more dramatic if you purchase a best-selling car, because high supply means less demand and pushes prices down. A recent search for a five-year-old Ford Taurus on the internet quickly revealed eight cars that could be purchased for less than 25% of the new car price.

Don’t buy the wrong end of the car. Buy used and save.

Buying the front end of the car:

• Sales price $30,000
  

• Value at the end of 5 years $10,800
  

• Net cost of car for 5 years $19,200

Buying the back end of the car

• Sales price $10,800
  

• Value at the end of 5 years $3,300
  

• Net cost of car for 5 years $7,500
  

• Estimated repair cost $ 3,000
  

• Total 5 year cost $10,500

Difference between buying the front-end versus the back end $ 8,700

About the Writer: David Brown became director of the Free Will Baptist Foundation in 2007. Send your questions to David at david@nafwb.org. To learn how the Foundation can help you become a more effective giver, call 877-336-7575.